The sale of Deccan Chargers, the suitors and the valuation climbdown

MUMBAI: Deccan Chronicle Holdings Limited (DCHL), having a debt weight of Rs 32 billion, can heave a sigh of relief as it found an interested party in Videocon Industries soon after it issued a tender notice inviting prospective buyers to bid for its IPL team.

The sale of the team at the right price holds the key to DCHL?s rescue plan as it desperately seeks investors to protect its core media business from sinking. The company is believed to have borrowed from 28 lenders including Yes Bank, and has mortgaged its other assets including its printing presses.

However, it?s amptly clear by now that DCHL will not get the kind of valuation that it was earlier looking for. The company, which publishes a clutch of newspapers including Deccan Chronicle and Financial Chronicle, was seeking Rs 15 billion from the sale of Deccan Chargers, the Hyderabad IPL team.

After gauging market sentiment, the company has climbed down from its demand and would be able to find a buyer willing to pay in the range of Rs 6.5-8 billion. Many believe Rs 6.5-7 billion would be an attractive valuation for the Hyderabad team.

Venugopal Dhoot, the CMD of conglomerate Videocon Industries, told Indiantelevision.com that a price tag in that range was "reasonable".

"We are interested in buying the franchise. Our bid could be in the range of Rs 7 billion," he added.

However, Videocon is not the only interested party. Some of the names doing the rounds include that of Ahmedabad-based Adani Group, Anil Ambani-promoted ADA Group and Chennai-based media house Sun Group(not listed entity).

Indiantelevision.com could not independently confirm whether Adani, Reliance ADAG and Sun are actually interested in Deccan Chargers. Gautam Adani, chairman of Adani Group, and Sun Group promoter Kalanithi Maran, could not be reached. Earlier, DCHL had denied a media report which had stated that the company was close to striking a deal with Sun Group.

Incidentally, Videocon, Adani and Reliance had at some point expressed interest in owning an IPL team.

DCHL had early Thursday issued a tender inviting bids to purchase the Hyderbad IPL team under the aegis of BCCI.

As per the tender notice, bidders would be required to enter into a new franchise agreement with BCCI. The purchase consideration would be paid into a bank account as decided by the lending banks, with 5 per cent payable directly to the BCCI.

The winning bidder will acquire from Deccan Chronicle Holdings on an "as is where is" basis which means that the new buyer will have to use the name Deccan Chargers and will have to clear the liabilities of the current owner.

The valuation climbdown

Kings XI Punjab co-owner Mohit Burman opines that anyone wanting to enter the IPL should pay a maximum of $200 million for a franchise as he believes that anything above will make the venture unsustainable.

"I am sure that the owners of the Deccan Chargers would love to get the price that the BCCI got when Sahara bought a franchise ($374 million for the Pune franchise). But had the business model been sustainable at such high price levels, then Kochi would not have folded," avers Burman.

Part of the family that owns Dabur, Burman adds: "The initial franchise buyers have managed to make profits. So a price of a price of around $125 million (Rs 6.5 billion) is reasonable. But to make profits after paying over $200 million could be difficult. Of course you could have a scene where someone enters the IPL for reasons other than wanting to make a profit. Then the price could be anything."

In 2008, DCHL paid $107 million for Deccan Chargers, making it the third costliest team among the first lot of franchise buyers. Billionaire Mukesh Ambani topped with $111.9 million for the Mumbai franchise, followed by Vijay Mallya?s $111.6 million for the Bangalore team.

Agrees Brand Finance India managing director M Unnikrishnan, "I think a value of Rs 6.5 billion is fair enough for a team like Deccan

 Chargers considering the fact that it falls on all three key parameters: engaging fans and monetising that fan base; lack of consistent performance on the field; and governance process."

The climbdown in Deccan Chargers valuation doesn?t surprise Unnikrishnan since that has been the trend with the IPL mother brand, which has seen its brand value plummet from a high of $4.13 billion in 2010 to $2.92 billion this year.

"The fate of the franchises and the mother brand (IPL) are interlinked. The brand valuation of IPL has been declining and it has reached 2009 levels when the valuation was at $2 billion," he adds.

Unnikrishnan, though, feels there is a hidden value in Deccan Chargers that any prospective buyer would like to exploit in the long run. "An investor has the scope to get its (Deccan Chargers) true value in future by fixing the weak areas," he says.